DALLAS - A federal bankruptcy judge has at least temporarily blocked a proposed $20 million severance payment for the CEO of American Airlines as part of the company's merger with Tempe-based US Airways.
The judge ruled that the proposed payment to CEO Tom Horton exceeded limits that Congress set for bankruptcy cases in 2005.
A spokesman for American said Friday that the airlines would push ahead with their merger and deal with Horton's compensation later.
The U.S. Trustee Office, part of the Justice Department, had objected to Horton's compensation. Judge Sean Lane declined to approve the payment during a hearing March 27, but he didn't issue a ruling until Thursday.
Although Lane denied the severance under bankruptcy law, he left open the possibility of a payment as part of American's final reorganization plan, which has not yet been filed. American Airlines spokesman Mike Trevino said the airline intends to address Horton's compensation that way.
While blocking Horton's payment for now, Lane formally approved the plan for American Airlines parent AMR Corp. to merge with US Airways Group Inc. in a deal that would create the world's largest airline. Lane said during the March hearing that he would approve the merger, which is now being reviewed by U.S. antitrust regulators.
Under the deal, the new company will be called American Airlines but run by US Airways CEO Doug Parker. Horton would serve as chairman for a few months and then leave with a severance of $19.875 million equally divided between cash and stock.
The Trustee Office argued that severance payments to insiders such as CEOs can't be more than 10 times the average severance pay for nonmanagement employees.
AMR argued that the limit didn't apply because the payment would be made by the new company formed after AMR emerges from bankruptcy protection.
But Lane called that argument "somewhat of a legal fiction" because the money was Horton's reward for his work at AMR.